Developer's Family Sues Over Retroactive Estate Tax; Attorneys Told Brainard He Had No Chance

CHRISTOPHER KEATING

When wealthy developer Monty Blakeman died in April, his heirs knew they would inherit his multimillion-dollar estate.

What they didn't know was that the state legislature on May 4 — only 11 days after Blakeman's death — would increase the Connecticut estate tax by including all estates of more than $2 million, rather than the previous threshold of $3.5 million.

They also did not know that legislators would make the law retroactive to cover anyone who had died since Jan. 1, thus including their deceased father.

The result for Blakeman's heirs? An additional tax bill of more than $100,000.

Stunned by that sudden change in the law, Blakeman's estate has filed a lawsuit against the state, claiming "an unconstitutional taking'' of Blakeman's property.

"I thought it was very unfair to backdate it,'' said his son, James, who now runs the construction company that his father founded. "My father would have felt the same way. We structured our estate planning for it. My dad said the state of Connecticut was making it harder and harder to stay in business. They're already going to get a lot of money out of us.''

The estate tax was increased by Gov. Dannel P. Malloy and the Democratic-controlled legislature as part of the largest tax increase in Connecticut history. As part of Malloy's "shared sacrifice,'' a series of taxes, including the income, sales, and cigarette taxes, were all increased.

But those paying the additional estate tax — at more than $100,000 in Blakeman's case — will see the highest increase of any category of taxpayers. Individuals could not possibly smoke enough cigarettes to see their taxes increase by six figures, and no one could buy enough cars and refrigerators to see their sales taxes jump by that level. Even millionaires would not see their income taxes go up by $100,000 as the top tax rate increased to 6.7 percent, from 6.5 percent.

Malloy's office referred questions to Kevin B. Sullivan, the state tax commissioner, who is named as the defendant in the suit. Sullivan said he could not comment on the merits of a pending case, but added that, in general, it is "pretty well established tax law'' that retroactive increases are legal.

The state recently attempted to transfer the case to tax court, but a Superior Court judge in Milford rejected the request. "The motion was denied, and we're still trying to figure out why,'' Sullivan said.

Retroactive Change

Blakeman, a self-made millionaire who was one of the top 10 taxpayers in his hometown of Shelton before he died of cancer at the age of 66, clearly had more money than the average Connecticut citizen and would be expected to pay more taxes. But it is the retroactive change in the law — after Blakeman's death — that his two children and four grandchildren believe is unfair.

"This only affects a very small number of people — people who died between January and May, when they passed the law, and people with estates over $2 million,'' said Stephen R. Bellis, a New Haven attorney representing the family. "It's a pretty small group of people they're doing this to.''

In his heyday, Blakeman was clearly one of the top developers in Shelton. Besides more than 400 condominiums in Shelton and single-family homes, he built commercial developments that included a CVS pharmacy in Milford and a Walgreens retail store in Seymour. Since his estate is worth more than the previous threshold of $3.5 million, Blakeman was always subject to the estate tax. The retroactive change in the law simply made it higher.

In another twist, Bellis said there is also a problem with making the law retroactive to Jan. 1, before Malloy was sworn in as governor and the current legislators were sworn in Jan. 5. On Jan. 1, Republican M. Jodi Rell" href="../topic/politics/government/m.-jodi-rell-hpp2166.topic">M. Jodi Rell, who opposed increases in the estate tax, was governor.

"The governor wasn't even elected, and the legislature wasn't even the legislature,'' Bellis said.

The case is headed to court amid an ongoing political battle about tax policy in Connecticut. Malloy and Democratic legislators talked consistently about shared sacrifice, while Republicans countered that the legislature should have cut spending further to close the projected deficit that was prompted by the worst national recession in more than 70 years.

Sen. L. Scott Frantz, a conservative Republican from Greenwich with expertise on tax issues, said he is concerned about the overall tax atmosphere in Connecticut at a time of consistently high unemployment and sluggish economic growth.

"Making a retroactive tax law is counterproductive and sends out a horrible message,'' Frantz said. "There's no way you can plan for that. You don't know when somebody is going to go. It is an absolutely un-American concept. It puts the taxpayer at a huge disadvantage.''

Sen. prague-PEPLT005307.topic">Edith Prague, a liberal Democrat from Columbia who voted for the retroactive increase as part of the overall tax package in May, said she was not aware that the new law would apply to residents who had already died.

"I thought that wasn't for people who died previously,'' Prague said in an interview. "Sometimes we do things without fully understanding the implications. … I thought it would be for people who died after July 1 when the tax package took effect. I feel bad for that family. It's a problem. It's a tough one. I honestly don't know what to say. Whether he had a $10 million estate or a $4 million estate, it's the principle of the thing.''

The Blakeman family is hoping for a precedent-setting ruling by the courts to settle the issue once and for all as thefamily's attorney can find no precedents by the Connecticut Supreme Court. In court, the family might havedifficulty in the case, according to Richard Pomp, a tax law professor at the University of Connecticut for the past 35 years.

In criminal law, retroactivity is unconstitutional. But in civil cases, as outlined in a famous federal case, United States v. Carlton, retroactive tax changes are legal under certain circumstances, Pomp said.

"The U.S. Supreme Court has accepted that laws can be retroactive as long as the period of retroactivity is modest,'' he said.

But what is modest?

"That's what lawyers like to fight about,'' said Pomp, a Harvard Law School graduate who wrote a book on taxation that has been translated into multiple languages.

In Connecticut, the legislature made the law retroactive by slightly more than four months rather than, for example, trying to go back three or five years.

"The beginning of the year would be modest,'' Pomp said, adding that he is not involved in the case and is not aware of all the facts that might come out at a trial.

Pomp cited a similar lawsuit in New Jersey, where the estate of millionaire Stanley Kosakowski had objected to a retroactive change in the law.The family lost in tax court, and then they lost again in the Appellate Court.

In a separate case, though, the estate of Cynthia Oberhand won a lawsuit on retroactivity inwhich the facts were slightly different. She died before the law was changed, but she had not owed any tax at the time of her death. The equivalent case in Connecticut would be someone who died earlier this year, before the law was changed, and had an estate worth between $2 million and $3.5 million, the two thresholds cited in the law.

"This is different from a change in the rates, which merely changes the amount that you owe,'' Pomp said. "In Oberhand, the effect of the change was to take an estate that was exempt and owed no tax and turn it into one that owed tax.''

Bellis, who represents Blakeman, said that the New Jersey cases would not have any impact in Connecticut, where the state Supreme Court has not made any definitive rulings on retroactive estate tax cases that either Pomp or Bellis could find.

Brainard Family: It Happened Before

While the Blakeman family was surprised by the legislature's move, it was not the first time that the Connecticut General Assembly passed a retroactive tax increase on the estate tax in virtually the same way.

The state income tax has been raised retroactively several times because those taxes are collected for the full calendar year — rather than only the fiscal year. But the legislature also retroactively increased the estate tax in 2005 — affecting the famed Brainard family, namesake of Brainard Airport in Hartford is named.

In April 2005, the family matriarch, Katherine Brainard, died at age 94 with an estate that her son, Charles, placed at about $11 million. After that date, the legislature changed the estate tax and made it retroactive to Jan. 1, 2005, in a move that shocked the family.

"Who would ever think it would be retroactive?'' Charles Brainard asked at the time. "Her estate should be under the rules as of the date of death. How can you retroactively tax someone who is already dead? It's pathetic.''

Now, more than six years later, Brainard said in an interview that he is over the anger and disbelief that he had at the time. Based on the new state tax structure that included a 16 percent rate on the portion of the estate over $10.1 million, Brainard said the legislature's change in the law cost his family an additional $1 million in taxes.

After consulting the family's attorneys at Robinson and Cole at the time, the family decided not to sue.

"The lawyers said, 'You're never going to get anywhere,'" Brainard recalled. "I never talked to any other family.''

As a member of one of the most famous families in Hartford history, Brainard comes from a long line of immense wealth and influence as the grandson of a former chairman of the Aetna insurance company. His grandfather, Morgan Bulkeley Brainard, was Aetna's president for more than 30 years, and the family also provided the namesake for Bulkeley High School and the Bulkeley Bridge across the Connecticut River. A Yale-educated Republican, Brainard, 74, is a longtime Hartford resident and longtime Aetna stockholder.

Overall, the total bill for state and federal taxes on his mother's estate, Brainard said, was more than $5 million. The top federal estate tax rate for 2005 was 47 percent, down from 55 percent in 2001.

House Republican leader Lawrence Cafero agrees that there is little public sympathy for millionaires in the legislature, but he defended Blakeman by saying the developer clearly worked hard for his money.

Blakeman, who is operating the company that his father built, said he understands the lack of sympathy for the plight of millionaires and their taxes. But he said he is fighting for the principle of fairness that would prevent changing the rules after the game is played.

"We're going to pay taxes. We know that,'' Blakeman said. "It's still unfair to do that [by making the rules retroactive].It really is. I think more people should stand up. It's worth it to open my mouth and say this is wrong.''

While Blakeman is fighting the battle today, Brainard said that his family decided to pay the additional estate tax six years ago and never expected to get a reprieve from the legislature or the courts.

"There's no lobbyist group who has any sympathy for dead millionaires,'' Brainard said. "That's the plain and simple truth. There's no union. There are no advocates. There's no sympathy.''